While Britain’s data has been relatively optimistic this week and would typically improve the Pound outlook, concerns and uncertainties about Britain’s general election next week have kept the British currency volatile.
GBP AUD has still advanced this week, from the week’s opening levels of 1.7185 to around 1.7380.
The Pound’s movement is likely to be volatile until next week, with Britain’s 2017 general election now just one week away and multiple polls showing the Conservative polling lead against the Labour party is narrowing.
While most polls still indicate that the Conservative party will win a comfortable majority in the election, some have begun to spark speculation that other outcomes are possible.
For example, a YouGov poll published on Tuesday evening used a new methodology. While this attempt to project the number of seats each party would win had a notably big margin of error, it raised the possibility that the Tories could fail to win a big majority and lead to a ‘hung parliament‘.
A different YouGov poll with a more traditional method, in partnership with The Times newspaper, was published on Wednesday evening showing the Conservatives continued to slip while Labour continued to gain.
This particular poll put the Conservatives on 42% and Labour on 39% – putting the parties within the three points seen as the typical margin of error for polling. This put additional pressure on the Pound with just one week to go.
Other polls continue to give UK Prime Minister Theresa May’s Conservative party a healthy lead however. With polls so widely different, Sterling is likely to be volatile as investors react to each successive poll.
Uncertainty is one of the biggest causes of market volatility. With the future of Britain’s leadership uncertain, the Pound is jittery.
The Pound was supported slightly by this week’s data, including news that Britain’s manufacturing PMI from Markit was better in May than expected. The print slipped from 57.3 to 56.7, despite a projected fall to 56.5.
On the other hand, the Australian Dollar has been unable to really benefit from this week’s news. Rising expectations that the Federal Reserve will hike US interest rates in June as well as poor Australian manufacturing stats have weighed on ‘Aussie’ appeal.
Australia’s manufacturing PMI from AiG for May dropped from 59.2 to 54.8. This offset any of the market optimism generated by solid Chinese manufacturing data or Australia’s strong April retail sales results.
PMI reports will continue to be published through Monday. Most notable will be Britain’s May services PMI, due Monday.
If this disappoints, the Pound is likely to fall as investors bet that Britain’s economy is beginning to slow due to strong inflation and weak wage growth.
The biggest events for the Pound Sterling and Australian Dollar next week however, will of course be the UK general election on the 8th of June and the Reserve Bank of Australia (RBA) interest rate decision on Tuesday.
The RBA is not expected to make any changes to monetary policy. However, if the bank indicates that risks regarding Australia’s job and housing markets have receded, the ‘Aussie’ could strengthen.
At the time of writing this article, the Pound Sterling to Australian Dollar exchange rate trended in the region of 1.7357. The AUD to GBP exchange rate traded at around 0.5760.
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